As memories of the festive period excesses begin to recede, many contractors will start to plan for moving home or improving existing homes in 2014. Others will simply be looking to tidy up personal finances by using steadily growing equity in existing property. Aside from knowing that the contract income continues to tick over, what wider economic factors may affect the freelancer’s decision to take on new mortgage debt?
Increasing House Prices
One of the key drivers will be the almost weekly headlines announcing that house prices continue to rise. House prices increased rapidly in 2013, an escalation that was pushed along by government initiatives for banks to lend, and also much more demand for property from those looking to buy. This upward curve will continue into 2014, with Treasury forecasters predicting an increase of 5.2%, and the Royal Institute of Chartered Surveyors forecasting a more bullish 8% increase. Looking at the more conservative projection, this will mean that the average UK house price in October 2013 will be nearly £13,000 more expensive by October 2014. These figures will be encouraging news for contractors who already own property, or those intending to do so in the near future. Not so good for those who don’t have funds for a deposit and need to wait prior to buying.
The Government made home ownership easier for those with smaller deposits in 2013, by bringing forward the Help to Buy mortgage guarantee scheme. This allowed a deposit as small as 5% of the purchase price a viable option for freelancers via participating banks. They also continued the Funding for Lending Scheme which gave banks cheap money to lend for mortgages. The downside to this latter point is that the Funding for Lending scheme was the single largest government stimulus for low mortgage rates, and this is being withdrawn in early 2014. There is likely to be a knock-on effect on the rates that mortgage lenders make available to borrowers as a result, basically higher rates without a Bank of England base rate hike.
Affordability of debt
The Royal Institute of Chartered Surveyors stated in December that any prospective buyer faces property supply that is ‘well short’ of demand in most areas in the UK. This steady increase in demand will inevitably drive up prices, but more importantly it may make a potential move unaffordable for some. This is particularly important when looking at indicators for potential future increases in mortgage rates. Many ‘experts’ predict that late 2015 will bring the first increase in the underlying rate of interest, which will trigger banks to increase the current record low rates. Affordability both now and in the future need to be carefully considered for contractors taking on new debt.
When the above economic factors are considered by contractors alongside personal requirements like the need for more space or getting out of rented accommodation, there is strong evidence that the opportunities that exist today for contractor mortgage funding may not be available for long. Record-low mortgage rates and sought-after properties may be a thing of the past by the time 2015 arrives, making New Year planning all the more important for the busy contractor.
Article by: Taj Kang, Business Development Director at Contractor Mortgages Made Easy
Media Content: Raman Kaur, Public Relations Manager
Tel: 01489 555 080